No-Fault Subrogation Archives - The Subrogation Strategist

In Michigan, an employee’s entitlement to compensation for injuries sustained in a motor vehicle accident is governed by both the Workers’ Disability Compensation Act of 1969, MICH. COMP. LAWS ANN. § 418.801 et seq., and Chapter 31 of The Insurance Code of 1956, MICH. COMP. LAWS ANN. § 500.3101 et seq., commonly referred to as the “no-fault act.” Polkosnik v. United Canada Ins. Co., 421 N.W.2d 241, 242 (Mich. App. 1988).

PIP1 benefits payable arising from a motor vehicle accident in Michigan include, principally, (1) medical benefits unlimited in amount and duration, and (2) 85% of lost wages for up to three years. See DEPARTMENT OF INSURANCE AND FINANCIAL SERVICES, Brief Explanation of Michigan No-Fault Insurance. As of October 2013, lost wages are capped at $5,282 per month. Id. Such benefits constitute an injured worker’s “economic loss.” See generally Wood v. Auto-Owners Ins. Co., 668 N.W.2d 353, 355 (Mich. 2003).

Michigan’s no-fault legislation is no different than other no-fault legislation in regard to its purpose: The automobile insurer pays without any right of reimbursement out of any third party tort recovery. Sibley v. Detroit Auto. Inter-Ins. Exch., 427 N.W.2d 528, 530 (Mich. 1988). Moreover, just like in New York, for example, “where benefits are provided from other sources pursuant to state or federal law, the amount paid by the other source reduces the automobile insurer’s responsibility.” Id. at 530.

Under the Michigan no-fault act, an employee’s entitlement to workers’ compensation benefits is set off against her PIP benefits, thereby reducing the PIP insurer’s liability for payment. Polkosnik, 421 N.W.2d at 242. Thus, if a motorist is injured in a motor vehicle accident while operating the vehicle in the course and scope of her employment, the compensation insurer covering the motorist substitutes as the primary payor of the benefits to which the injured motorist is entitled under the no-fault act. See generally Mathis v. Interstate Motor Freight Sys., 289 N.W.2d 708 (Mich. 1980). See also Great Lakes Am. Life Ins. Co. v. Citizens Ins. Co., 479 N.W.2d 20, 24 (Mich. App. 1991) (“Although a workers’ compensation carrier is not a no-fault insurance carrier, it nevertheless “stands in the shoes” of a no-fault carrier. . . .”).

PIP insurers are entitled to reimbursement out of a motorist’s third party recovery “only if, and to the extent that, the tort recovery includes damages for losses for which [PIP] benefits were paid.” Workman v. DAIIE, 274 N.W.2d 373 (Mich. 1979). In other words, subrogation is only possible for economic damages, since PIP does not provide coverage for noneconomic damages like pain and suffering, for example.

But such subrogation is limited to several circumstances set forth in MICH. COMP. LAWS ANN. § 500.3116. Dunn v. Detroit Auto. Inter-Ins. Exch., 657 N.W.2d 153, 158 (2002). “It is now clear that an insurance carrier responsible for no-fault benefits may realize reimbursement from an insured’s third-party tort claim only in the following situations: (1) accidents occurring outside the state, (2) actions against uninsured owners or operators, or (3) intentional torts.” Citizens Ins. Co., 479 N.W.2d at 23 (citation omitted).

Since workers’ compensation benefits substitute for no-fault benefits otherwise payable in the event of a motor vehicle accident, a workers’ compensation carrier’s subrogation rights “are coextensive with those of the no-fault insurer whose liability it replaces and are thus limited to cases where there is tort recovery for basic economic loss.” Great Am. Ins. Co. v. Queen, 300 N.W.2d 895, 897 (Mich. 1980). Thus, a compensation insurer’s subrogation rights are limited to the same three exceptions enumerated in MICH. COMP. LAWS ANN. § 500.3116. And, like PIP insurers, workers’ compensation insurers are generally not subrogated for noneconomic damages—i.e., pain and suffering. Citizens Ins. Co., 479 N.W.2d at 23-24.

Unlike PIP insurers, however, workers’ compensation insurers are entitled to subrogation under an exception not available to PIP insurers: “When the carrier pays benefits which do not substitute for no-fault benefits, because they exceed no-fault benefits in amount or duration, it should be treated like all other workers’ compensation carriers and be entitled to reimbursement out of any third-party recovery.” Queen, 300 N.W.2d at 897 (emphasis added). The determination of whether a workers’ compensation carrier’s payments “exceed” PIP benefits otherwise payable “involves a factual question.” Bialochowski v. Cross Concrete Pumping Co., 407 N.W.2d 355, 360 (Mich. 1987) (subsequent case history omitted).

One Michigan appellate court has stated that “[a]ny weekly workers’ compensation benefits paid beyond that three-year period cannot properly be regarded as a substitute for benefits under the no-fault act.” Hearns v. Ujkaj, 446 N.W.2d 657, 659 (Mich. App. 1989). Thus, such benefits are recoverable in subrogation under the Queen exception. Allowing subrogation for such benefits “would work no discrimination” against motor vehicle accident victims who happen to be injured in the course or scope of employment because reimbursement is permitted only for benefits which other motor vehicle accident victims do not receive. Queen, 300 N.W.2d at 897.

Other Michigan courts have continued to apply the Queen exception to scenarios in which the compensation insurer sustains a loss that exceeds the PIP threshold in either, or both, the time and quantity set forth in the no-fault act. Identifying when theQueen exception might apply to a given state of facts is critical for ensuring that a compensation insurer can exploit the exception. It is critical that counsel be sought whenever a set of facts appears to introduce an intersection between two or more statutory schemes—such as Michigan’s Workers’ Disability Compensation Act and no-fault act—so that every opportunity for a recovery can be properly vetted and pursued.

Robert M. Caplan is Counsel with White and Williams LLP and Workers’ Compensation Subrogation Team Leader. In addition to litigating and trying cases, Rob is a frequent lecturer at national and regional conferences held by the National Association of Subrogation Professionals (NASP) where he has been a Track Leader for the Workers’ Compensation Subrogation Track. Rob can be reached at caplanr@whiteandwilliams.com and 215.864.7012.

New York’s “no-fault” legislation reflects a public policy designed to make the insurer of first-party benefits absorb the economic impact of loss without resort to reimbursement from its insured or, by subrogation, from the tortfeasor. Country Wide Ins. Co. v. Osathanugrah, 94 A.D.2d 513, 515 (N.Y. 1st Dept. 1983). The no-fault concept embodied in New York’s Insurance Law modifies the common law system of reparation for personal injuries under tort law. Safeco Ins. Co. of Am. v. Jamaica Water Supply Co., 83 A.D.2d 427, 431 (N.Y. 2nd Dept. 1981). “[F]irst party benefits are a form of compensation unknown at common law, resting on predicates independent of the fault or negligence of the injured party.” Id. at 431. The purpose of New York’s no-fault scheme is “to promote prompt resolution of injury claims, limit cost to consumers and alleviate unnecessary burdens on the courts.” Byrne v. Oester Trucking, Inc., 386 F. Supp. 2d 386, 391 (S.D.N.Y. 2005).

New York’s no-fault scheme—contained in Article 51 of its Consolidated Laws (“Comprehensive Motor Vehicle Insurance Reparations”)—requires owners of vehicles to carry insurance with $50,000 minimum limits which covers basic economic loss, i.e., first-party benefits, on account of personal injury arising from the use or operation of a motor vehicle. Basic economic loss includes, among other things: (1) medical expenses; (2) lost earnings up to $2,000 per month for three years; and (3) out-of-pocket expenses up to $25 per day for one year. N.Y. INS. LAW § 5102(a).

Where workers’ compensation insurance coverage exists for an injured motorist— i.e., where the motorist is operating a vehicle while in the course and scope of her employment—the workers’ compensation insurer must pay the injured motorist’s basic economic loss up to $50,000. N.Y. INS. LAW § 5102(b)(2). The compensation insurer in this scenario is said to become “primary.” And since first-party benefits are guaranteed regardless of fault, there is no corresponding right of subrogation for the carrier reimbursing an injured motorist for items of basic economic loss. Condon v. Hathaway, 740 N.Y.S.2d 600, 603 (N.Y. Sup. Ct. 2002).

Instead, New York provides a compensation insurer with what is referred to as “loss transfer.” Loss transfer is simply an opportunity to recover from the negligent motorist’s vehicle insurer the first-party benefits the compensation insurer became obligated to pay as a result of the accident. But the right of a compensation insurer to recover under the loss transfer exception depends on the existence of either of two conditions: At least one of the motor vehicles involved (1) weighs more than 6,500 lbs. unloaded, or (2) is used principally for the transportation of persons (e.g., taxi, bus) or property for hire (e.g., FedEx, delivery truck)1. N.Y. INS. LAW § 5105(a). If one of these two conditions is met, a compensation insurer is free to pursue a loss transfer against the negligent motorist’s vehicle insurer for the recovery of the $50,000 first-party benefits it became obligated to pay under Section 5102(b)(2).

The “sole remedy” for pursuing a loss transfer against the negligent motorist’s vehicle insurer is, without exception, arbitration. N.Y. INS. LAW § 5105(b). Thus there is no signatory requirement as arbitration is the sole remedy of any insurer seeking a loss transfer arising from a motor vehicle accident in New York. The New York Insurance Department has selected Arbitration Forums as the administrator of loss transfer arbitration and, through its regulations contained in 11 NYCRR § 65.10 (2003), has granted Arbitration Forums the authority to “make appropriate administrative rules for arbitration.”

It is important to remember that loss transfer is only applicable to the $50,000 first-party benefits a compensation insurer becomes obligated to pay under Section 5102(b)(2) of New York’s Insurance Law. Recovery of “APIP” 3 —or, additional benefits paid over and above the $50,000 no-fault threshold—can be had through conventional workers’ compensation subrogation provided under N.Y. WORKERS’ COMP LAW § 29.

New York’s loss transfer scheme is fraught with nuance and hidden exceptions, found not only in Article 51 itself, but also in the Insurance Department’s extensive regulations and in the rules promulgated by Arbitration Forums pursuant to its authority given by the Insurance Department. It is critical that counsel be sought as soon as practicable in a potential loss transfer case to not only preserve a loss transfer opportunity but to develop a comprehensive strategy for a successful recovery.

The Subrogation Strategist

Tag Archives: No-Fault Subrogation

Michigan: Identifying and Exploiting the “Queen Exception” to No-Fault Subrogation

New York: The “Loss Transfer” Opportunity to Recover Otherwise Non-Recoverable First-Party Benefits